Employment Compliance
AI teams carry risks a standard labour contract does not cover: staff holding both code and secrets, pay mixing cash with options, and outsourced work courts may re-characterise.
The risk is not in the contract — it is in what the contract leaves outside it
Most AI companies have signed labour contracts. Fewer have answered the questions that actually generate disputes: who owns what an engineer builds at 11pm on a personal laptop; what happens to vested options when someone resigns; whether the “outsourced” team that sits in your office and reports to your lead is legally a contractor at all.
A labour contract governs wages, hours and termination. It does not, by itself, allocate intellectual property, secure trade secrets, or survive the departure of the person who knows how the model was built. Those require a second layer of documents — and that layer is usually missing.
What we do
- Contract system: differentiated templates for technical and non-technical roles, onboarding and exit workflows, employee handbook
- Options and employment interplay: exercise conditions tied to active employment, leaver treatment, linkage between non-compete obligations and repurchase rights
- IP ownership: work-for-hire clauses, allocation of inventions created in service, clean-up of legacy contributions from founders and early contractors
- Confidentiality and non-compete: NDA architecture, non-compete for designated positions only, liquidated damages design
- Flexible workforce: service, part-time and consultant agreements structured to avoid re-characterisation as employment
What is different for an AI company
- The invention-assignment clause must cover models and data. “Code belongs to the company” is not enough; training data, annotation output, model weights and prompt assets all need to be captured.
- Set non-compete boundaries by role. Algorithm and data roles touch core assets and can be bound; an over-broad clause for ordinary operations staff may be held invalid while compensation is still owed.
- Annotation and cleaning work easily becomes de facto employment. Long-term fixed shifts, piece-rate pay and day-to-day management can establish an employment or dispatch relationship; the agreement and the workflow both need boundaries.
- Cross-border remote employment starts with the name on the contract. Hiring overseas staff directly through the onshore entity triggers local labour law, tax and permanent-establishment risk at once.
- Document the exit. Records of revoked repository access, cloud accounts, model weights and data access logs are the evidentiary basis for later non-compete and trade-secret claims.
Typical situations
Situation 1: A lead engineer leaves and the training pipeline goes with them
The principal algorithm engineer resigns and joins a competitor. Three months later the competitor ships a comparable model. There is no non-compete, no written IP assignment beyond the boilerplate contract clause, and no software copyright registration on the core code. Enforcement is theoretical.
Our approach: assign in-service creations explicitly to the company, put non-compete in place for designated positions with defined scope and compensation, register copyright in core code to create dated evidence of ownership, and require an IP confirmation and confidentiality undertaking at exit.
Situation 2: Options exercised, employment terminated, nothing says what happens next
An employee exercises options before vesting completes, then resigns. Does vesting continue? At what price can the company repurchase? With no clause, both sides are litigating an unwritten expectation.
Our approach: state in the grant agreement that vesting ceases on termination, that unvested awards lapse, that vested shares are repurchased at a formula price, and — where a non-compete applies — that the repurchase price is paid in instalments over the restricted period, which aligns the two obligations instead of setting them against each other.
Situation 3: The “outsourced” team is found to be employees
A team engaged on service agreements works fixed hours at fixed desks, reports to a company manager, and is paid monthly. On termination they claim an employment relationship, back social insurance and severance.
Our approach: test the relationship against the substantive criteria — subordination, integration into the organisation, pay structure, assumption of business risk — and restructure accordingly: project-based fees, no fixed attendance, delivery-based acceptance, and documented independence. Changing the label alone does not change the finding.
Process and deliverables
| Stage | Work | Deliverables |
|---|---|---|
| 1 | Workforce mapping, risk identification | Employment risk assessment |
| 2 | Contract system build | Role-based contract templates + employee handbook |
| 3 | Confidentiality, non-compete and IP layer | NDA + non-compete + IP assignment set |
| 4 | Options-to-employment interface | Exercise rules + leaver handling SOP |
| Ongoing | Change management, regulatory updates | Change alerts + revised agreements |
AI-specific deliverables
- Work-product confirmation deed: code, training data, annotation output, model weights and prompts confirmed item by item, replacing “code belongs to the company” boilerplate.
- Exit asset-recovery checklist: repository permissions, cloud accounts, model weights and data-access logs recovered and logged.
Frequently asked
Is compensation mandatory for a non-compete? Yes. Under Art. 23 of the Labour Contract Law the employer must pay monthly compensation during the restricted period; an unpaid non-compete is vulnerable to being held unenforceable. Where the agreement is silent on amount, judicial practice defaults to 30% of the average monthly wage over the preceding twelve months, subject to local minimums; commercial practice commonly sets 30%-50%.
Should every employee sign a non-compete? No — and blanket use is counterproductive. Non-competes apply to positions with access to trade secrets or critical know-how. Extending them to staff who hold neither weakens enforceability across the board.
What are the risks of remote work? Cross-city and cross-border remote arrangements raise questions of social insurance jurisdiction, the place of contract performance, working-time records and data security. A remote-work addendum covering location, hours, equipment and data handling is the practical minimum.
Do part-time staff need a labour contract? Part-time engagement is non-full-time employment and can be documented by a service agreement. But substance governs: fixed hours, direct management and integration into the business can still produce an employment finding regardless of the label.
What must an algorithm or data role contract say? Work-product ownership covering code, model weights, training data and prompts, plus confidentiality and access-recovery terms. A generic “code belongs to the company” clause leaves the weights and datasets unaddressed.
Legal basis
- Labour Contract Law: written contract within one month of engagement (Art. 10), probation limits (Art. 19), non-compete scope and compensation (Arts. 23-24), severance (Art. 47)
- Patent Law Art. 6: service inventions and the inventor’s reward
- Copyright Law Art. 18: works created in the course of employment
- Anti-Unfair Competition Law Art. 9: trade secrets
- Social Insurance Law: contribution obligations
- Supreme People’s Court Interpretation (I) on Labour Dispute Cases (2020)